Accounting for Freelancers

1. DIY Accounting for Freelancers Accounting for Freelancers Presented by Tim Wicksteed SWMobile “Going Freelance” 29/05/13 www.twicecircled.com @twicecircled tim@twicecircled.com

2. Step 1 - Should I Self-Account? Accountants cost money… BUT It takes time to do your own accounts Is your time better spent working?

3. “I’m going to do my own accounts!”

4. Step 2 – Sole trader/Ltd Company • Sole trader means only one tax form to fill in at the end of the year. • Limited company is significantly more complicated but there are advantages: • Tax efficient • Possibility to expand business, take on staff/contractors • Limited liability This presentation only deals with the Limited Company route.

5. 1Unique Taxpayer Reference Step 3 – Setup • Incorporate your company with Companies House • Receive UTR1 from HMRC in the post • Request an Authentication Code for Web Filing from Companies House • Register your company with HMRC/Government Gateway • Wait until you start trading • Log-in to HMRC and use your UTR1 to enrol for Corporation Tax • Receive confirmation pin from HMRC in the post • Enter pin into HMRC to finalise enrolment • Repeat steps 6-8 for PAYE (if applicable)

6. Step 4 – Keeping Accounts • Optional guidelines are in Financial Reporting Standard for Smaller Entities (FRSSE), effective April 2008 • Make a spreadsheet to track everything at the beginning! • Update it as you go along! Use my simple template

7. Step 5 – Paying yourself • Option 1 – Dividends and more dividends! • Pay 20% corporation tax on everything. • Pay additional 25% on any dividends beyond £32,010 (before tax) • Option 2 – Tax free salary + Dividends • Pay 0% on your salary up to £7696 (2013/14 Secondary Threshold) • Pay 20% corporation tax on everything above £7696 • Pay additional 25% on any dividends beyond £32,010 (before tax, including the £7696 salary)

8. Quick recap: PROFIT = GOOD! WRONG! Corporation tax is proportional to profit!

9. Step 6 - Expenditure • Standard expenses • Things your company pays for directly: • Salaries • Rent • Utilities • Etc.

10. Step 6 – Expenditure (2) • Reimburseable expenses • But wait! Only certain items can be reimbursed by your company as business expenses, see 480 and 490. • Key notes: • Business mileage in your own car can be reimbursed (without receipt) at 45p per mile (< 10000 miles) • Keep a record of every trip you make though • Receipted travel and subsistence (hotels, trains) have to declared on form p11d and self-assessment. Excellent explanation. • Get a dispensation to avoid the hassle. • However for both of these you need to register your company for PAYE.

11. Step 6 – Expenditure (3) • When you buy equipment your company does not incur a loss • Appears as asset on balance sheet • Hence, does not reduce corporation tax liability • Annual Investment Allowance (AIA) for capital expenditure: • Equipment • Software • £250000 for 2013/14

12. Step 7 – Corporation Tax Return • Decide on your company’s tax year • Login to Companies House and change your company’s accounting period to line up with your tax year • Wait until the company’s tax year has finished… • Login to HMRCand file your corporation tax return – you will have an option to change the dates! • Follow the process through and download form CT600 • Use the Joint Filing service to do your Company Accounts simultaneously • Your spreadsheetshould have all the numbers you need to complete the form • Settle up the corporation tax due 9 months later

13. “I’m going to do my own accounts!”

14. Questions? Presented by Tim Wicksteed www.twicecircled.com @twicecircled tim@twicecircled.com Slides available at: http://www.twicecircled.com/resources/tools/accounting/accounting_for_freelancers.pptx